Do you get a tex free amount if your company retires you through ill health ?

LULULU1

I am likely to be ill health retired by my company shortly.

Someone mentioned that the first £30,000 of any payment is tax free. I believe I will get 26 weeks play plus 12 weeks in lieu of notice. This is completely separate from anything to do with pensions.

Is this correct?

Many thanks

Keep_pedalling

You seem to be describing redundancy rather than retirement on medical grounds.

LULULU1

No Im being medically retired due to ill health not made redundant....

p00hsticks

LULULU1 said:

No Im being medically retired due to ill health not made redundant....

As Keep_pedalling says the 'first £30,000 tax free' rule applies to people getting made redundant, not those being retired due to ill health. So your 'someone' has their wires crossed, and they're not correct.

Jeremy535897

It is a bit more complicated than that. Certain ex gratia payments may also qualify for the £30,000 exemption. Anything to which OP is entitled under the contract of employment will not normally qualify. The best thing to do is to discuss the matter with the employer.

KingOfSnake

As with all things tax, there is no simple answer. Firstly, the Payment In Lieu of Notice ("PILON") will all be taxed and NIC's under the Post Employment Notice Pay ("PENP") principal. The second part of the question is not so simple. There is a strict taxing order for termination payments (excluding the PENP aspect) - contractual payments first, restrictive undertakings second, retirement third and compensation last (the £30,000). So if you are retiring it would appear that this would be fully taxable as an Employer Finance Retirement Benefit Scheme (s.393A & B ITEPA) but there is a carve out for ill-health. Also, it all depends on what the "ill health" is and what has caused it. If it is an accident or disability then it could be totally exempt - (see s.406b ITEPA) but even the "disability" has to meet certain criteria known as the Hasted v Horner test. If the 26 weeks is below £30,000 anyway it is not worth exploring further, otherwise speak to your HR department and ask them in advance how they propose to tax the severance (the PILON, as I mentioned, should all be taxed & NIC'd anyway). Then, you will need to do an end of year reconciliation with HMRC as invariably tax is overpaid now, and reclaimed later depending on when the process the payment (pre-P45 or post P45 as then either your normal tax code is used or 0T on W1M1 basis).

LULULU1

Thank you so much for a great in-depth reply. Ill get on the phone to HR...